UNITED STATES - Contra Costa County Employees' Retirement Association has decided to reconsider its earlier $75m (€57.9m) commitment to the Morgan Stanley Real Estate Fund VII Global.

Sources say officials are concerned about the risk of investing in opportunity funds which use high leverage on their deals, especially as many opportunity funds have run into problems on some transactions carrying debt due this year. And Morgan Stanley was planning to apply 70% leverage on the commingled fund..

The situation is further complicated as there is a lack of financing in the marketplace to refinance the debt and some opportunity funds have been forced to additional capital to cover their debt costs, including the Guggenheim Fund IIa and The Fortress Group for Fortress Fund III.

Contra Costa County feels there is risk involved in investing with Morgan Stanley, given all of the turmoil with large financial institutions, coupled with major personnel changes at Morgan Stanley: the departure of its chief investment officer and chief executive officer.

Contra Costa County first approved a commitment to Real Estate Fund VII Global last summer but pension fund never signed any legal documents to invest capital into the commingled fund as it was still conducting due diligence on the fund.

Morgan Stanley is projected to raise $8bn-$10bn for the fund while its co-investment will be around $500m.

The fund's investment strategy is to distribute assets equally in the US, developed Asian markets such as Japan, Western Germany - though focusing on Germany - and in emerging markets such as China.

Deals signed to the fund are expected to include public to private transactions and as well as equity holdings in emerging markets development projects.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com